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The Governance of Close Corporations and PartnershipsUS and European Perspectives$
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Joseph A. McCahery, Theo Raaijmakers, and Erik P. M. Vermeulen

Print publication date: 2004

Print ISBN-13: 9780199264353

Published to Oxford Scholarship Online: January 2010

DOI: 10.1093/acprof:oso/9780199264353.001.0001

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Bracketed Flexibility: Standards of Performance Level the Playing Field

Bracketed Flexibility: Standards of Performance Level the Playing Field

(p.133) 5 Bracketed Flexibility: Standards of Performance Level the Playing Field
The Governance of Close Corporations and Partnerships


Oxford University Press

This chapter explores the role of fiduciary duties in limiting opportunism in closely held businesses. In a closely held firm, high standards of performance are believed to be necessary to constrain opportunism. Yet it is widely recognized that there has been considerable pressure in the US to de-emphasize standards of performance, such a fiduciary duty or heightened good faith, for unincorporated business forms. There is evidence of similar pressure in Europe. The main reason given for opposing standards of performance is that they impede the parties'ability to bargain freely. However, the standards are designed to level the playing field and thus enhance the possibility of meaningful bargaining. The standards accomplish this goal by being flexible and rising in relation to the transactor's power and conflict.

Keywords:   closely held business, standards of performance, agency costs, fiduciary duties, opportunism, good faith

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